ANNUAL REPORT 1998 · 2017-02-15 · automobile industry. In the area of material handling...

ANNUAL REPORT 1998

AnnualRep. 98-a 8/26-1-1 8/26/98 11:34 Page a-3

Financial Highlights·························································· 1

To Our Shareholders ························································ 2

Review of Operations······················································· 4

Financial Statements························································23

Report of Independent Public Accountants ···················35

Network ············································································36

Major Subsidiaries and Affiliates ·····································38

Organization·····································································39

Board of Directors····························································40

Corporate Data ································································41

CONTENTS

AnnualRep. 98-a 8/26-1-2-1 8/26/98 11:33 Page a-2

1

F I N A N C I A L H I G H L I G H T S

SUMITOMO HEAVY INDUSTRIES, LTD. and Consolidated SubsidiariesYears ended March 31, 1998, 1997 and 1996

Millions of yen Thousands of U.S. dollars (except per share amounts) (except per share amounts)

1996 1997 1998 1998

Net sales······································· ¥ 499,990 ¥ 606,537 ¥ 556,786 $ 4,218,076

Net income ··································· 6,024 5,923 4,613 34,947

Net income per share of common stock (*) ························· 10.23 10.06 7.83 0.06

Stockholders’ equity····················· 71,023 76,123 78,909 597,796

Total assets··································· 698,610 740,091 748,017 5,666,796

(*) Net income per share of common stock is based on the weighted average number of shares outstanding in each year.

Net Sales by Segment (¥ Million)1998 Net Sales ¥556,786

17.1%

Environmental Systems,Plants & Others

¥74,980

Ship, Steel Structure &Precision Products

¥101,857

Mass-ProducedMachinery

¥284,894

Industrial Machinery

¥95,055

18.3%

51.1%

13.5%

499,990

606,537556,786

96 97 98

Net Sales(¥ Million)

6,024 5,923

4,613

96 97 98

Net Income(¥ Million)

96 97 98

698,610 740,091 748,017

Total Assets(¥ Million)

AnnualRep. 98-a 8/26-1-2-2 8/26/98 12:02 Page 2

2

T O O U R S H A R E H O L D E R S

With the deepest gratitude to all our

shareholders and customers, I am

pleased to present our company’s Annual

Report for the fiscal year ended March

31, 1998.

While the Japanese economy

remained sluggish in 1997, there were

some positive signs. The yen’s

depreciation combined with vigorous

economic growth in the United States

resulted in strong export gains which

moderated the continuing decline in

domestic demand brought on by an

increase in the consumption tax, the

elimination of special tax cuts, and

reduced investment in public works.

Aimed at reducing the public deficit,

these fiscal measures further dampened

personal consumption and suppressed

new capital investment. Instability in the

banking and financial sectors together

with the general Asian economic crisis

also had a severe impact on the

Japanese economy, helping to prolong

the recession and provoke a mood of

pessimism among many businesses.

Despite the severity of the economic

climate, Sumitomo Heavy Industries, Ltd.

(SHI) forged ahead with its 1996 to 1998

middle-term management plan

“CHALLENGE 98”, working to strengthen

our base in order to improve profitability.

“CHALLENGE 98” focuses on

restructuring our business with an eye on

increasing our cost competitiveness,

increasing emphasis on high-profit

business areas, and concentrating

management resources. Through

“CHALLENGE 98”, we are developing a

new set of globally oriented management

strategies that focus on speed, efficiency,

and carefully prioritized sales targets.

However, despite favorable growth in

orders for Environmental Systems, Plants

& Others, total orders fell 2.2% from the

previous year to ¥605,909 million, largely

as a result of the soft construction market

which continued to have an adverse

impact on the business of affiliated

companies in the construction-related

industry. Volume declines in all sectors

also brought sales down by 8.0% to

¥556,786 million. An appraisal stock

decrease in non-operating expenses

resulted in net profits of ¥4,613 million.

● Industrial Machinery

Slowdowns in the manufacturing

industry put severe pressure on this

sector. To maintain a steady flow of

orders, we renewed our emphasis on

customer service, and reinforced our cost

competitiveness and restructuring efforts.

Orders for iron & steel manufacturing

machines, material handling equipment

and logistics & handling systems kept

pace with previous years. Our customer-

oriented strategy was especially

successful in the area of logistics &

handling systems, where we were able to

secure some very large contracts.

●Ship, Steel Structure & Precision

Products

With little activity in the shipping

market and over-capacity pushing down

prices for ships, there was little

opportunity for us to grow this market in

1997. On the other hand, despite

declining government demand, orders for

bridges and steel structures increased

AnnualRep. 98-a 8/26-1-3 8/26/98 11:24 Page 2

significantly. To improve profitability, we

are continuing our program to reduce

costs and increase productivity.

●Mass-Produced Machinery

Sales of our Cyclo® gear motor,

Altax, remained strong and continued to

dominate the power transmission

systems market in Japan. Internationally,

we established new sales offices in Italy,

Switzerland and Spain, with the ultimate

goal of capturing the No. 1 position

worldwide.

The competitiveness of our plastic

processing machines has improved

dramatically, boosting sales and making

these products second only to power

transmission equipment in terms of

profits. Customers have been especially

pleased with our disc molding machine

for CDs and sales have increased

accordingly. At the international level,

new production facilities in the United

States and further expansion in Asia —

including the establishment of a sales

and service office in the Philippines —

are further accelerating the growth of our

global presence.

Our laser systems are known

worldwide for their advanced technology

and this past year we invested additional

management resources to grow this

business, improve profitability, and

develop new products and new users.

Not surprisingly, the area hit worst by

the recession has been construction

machines. Declining public and private

investment in infrastructure and facilities,

together with stiffer price competition,

has pushed down sales and profits

in this area.

●Environmental Systems, Plants &

Others

During FY1997, we continued to

expand our business in the promising

environmental field and are gaining an

excellent reputation for both our

advanced technology and our ability to

respond quickly to customer needs.

Sales in this sector continued to grow, as

did orders for large-scale systems

including water supply/drainage and

night soil treatment plants, waste

incineration plants and private power

generation plants.

As globalization increases the

competitive pressure on businesses

around the world, success in the new

global economy demands that

companies maximize their efficiency and

responsiveness. At SHI, we are

committed to achieving a leadership

position in each of the fields in which we

do business. To do this, we are working

to boost our competitiveness by taking

advantage of the many exclusive

leading-edge technologies that we have

developed. At the same time, we are

refining and clarifying our management

strategies and business strategies, while

pushing for even greater innovation,

faster product development, and

expansion of our global operations. To

support these efforts, we are utilizing

today’s most advanced computer

hardware and software to build a

comprehensive array of information

systems and training our young

employees to be world-class

professionals. In view of the critical

importance of having a coordinated

strategy in the future, we have instituted

regular corporate board meetings

attended by top executives and staff not

directly involved with daily business

operations, and reinforced the strategy

planning function of our headquarters

staff. To increase management

responsiveness and accelerate

innovation and efficiency, we have also

invested heavily in information

management and communication

systems. But while increased efficiencies

and streamlined operations can help

increase profitability, the key to our

success is still customer satisfaction. To

strengthen the customer orientation of our

products and services, we are

developing company-wide “management

quality” improvement activities to instill

and expand the concept of quality at all

management levels.

The ups and downs of the economy

make it impossible to predict how SHI will

fare in the coming fiscal year, but we are

confident that our efforts to improve

management and to provide high-quality

products to customers around the world

will ensure another profitable year.

In conclusion, I would like to say once

again how greatly I appreciate the

support that all of you have given us over

the years. I sincerely hope that you will

continue to provide the same level of

support in the years to come.

Mitoshi Ozawa,

President

3

AnnualRep. 98-a 8/26-1-3 8/26/98 11:24 Page 3

4

R E V I E W O F O P E R A T I O N S

The Industrial Machinery sector

consists of the Machinery Group

and the Machinery Sales Group.

The Machinery Group handles

production of the sector’s main

products which include: iron &

steel making facilities, forging

presses and material handling

equipment. Other products

include: logistics & handling

systems, equipment for public and

private facilities, quantum

equipment such as accelerators

and magnets used in advanced

medical research and industrial

applications, and paper machines

and machine tools. The Machinery

Sales Group is responsible for

selling and marketing these

products.

Major subsidiaries and affiliates

include Shin Nippon Machinery

Co., Ltd. which manufactures and

markets industrial turbines and

pumps, and Nihon Spindle Mfg.

Co., Ltd. which manufactures and

markets spinning machinery and

environmental protection

equipment.

A major part of our efforts to

bring down costs in this sector and

enhance our competitiveness

involved increasing the level of

overseas procurement and

streamlining the production

process. These measures helped

us secure more orders than in the

previous year despite a decrease

in demand for paper machines and

quantum equipment. Overall, order

bookings rose to ¥104,130 million

in FY1997, an increase of 7.2%

over the previous year. Most of

these increases came in the areas

of iron and steel manufacturing

machines, material handling

equipment, and logistics &

handling systems. Sales, on the

other hand, fell to ¥95,055 million,

down 3.2% from the previous year

largely as a result of a slump in

demand for iron and steel

manufacturing machines and

quantum equipment.

Iron and steel manufacturing

machines remain an important

sector within the industrial

machinery category and this year

we redesigned our equipment to

enhance productivity and product

quality. Our medium slab

continuous casting machines are

setting the pace in casting

technology and over the past year

three of these machines went into

operation in the United States at

NSS/BHP Inc. and TRICO Inc.

79,05198,172

95,055

(¥ Million)

96 97 98

17.1%

• Iron & Steel Manufacturing Machines

• Nonferrous Anode Casting Machines

• Osprey Preforming Systems

• Forging Machines

• Material Handling Equipment

• Logistics & Handling Systems

• Automated Parking Systems

• Moving Sidewalks

• Ion Accelerators

• Cyclotrons for Medical Use

• Electron Beam Accelerators

• Magnets

• SR Ring AURORA®

• Superconducting Equipment

• Plasma Coating System for FPD (Flat

Panel Display)

• Space Cryo-System

• Paper Machines

• Machine Tools

• Industrial Turbines and Pumps

Main Products

Net Sales

Share of Total Sales

Industrial Machinery

AnnualRep. 98-a 8/26 8/26/98 18:12 Page 4

5

SHI tension levelers are also

rated highly in the Japanese

market, where they dominate.

High-speed tension levelers for

high-strength thin steel sheets are

one of our specialties and we

supplied one of these to NKK

Fukuyama Works.

In the area of forging machines,

we continued our shift towards

overseas manufacturing. Orders

and sales both increased despite

the downturn in the Asian market,

thanks to recovering demand in

Europe and in the Japanese

automobile industry.

In the area of material handling

equipment and logistics & handling

systems, a number of high-

performance systems were

delivered this year including 16

transfer cranes for Hong Kong

Medium slab continuous casting machine

High-speed tension leveler

AnnualRep. 98-a 8/26 8/26/98 18:12 Page 5

6


Transfer cranes

AnnualRep. 98-a 8/26 8/26/98 18:12 Page 6

7

International Terminals, Ltd. to

which 40 transfer cranes have

been already delivered. We also

completed and installed a large-

scale automated storage and

shipping system for Asahi

Breweries, Ltd. Our moving

sidewalks, meanwhile, continued to

gain in popularity. Our installation

in the Shinjuku Metropolitan Road

No. 4 underground passage was

so successful that we were asked

to install another on Shinjuku-Ward

Road No. 2. A moving sidewalk

was also delivered to a

snowboarding slope where it can

be used both to ascend and

descend the hill.

With the use of accelerators

expanding in medical treatment

and in industry, the outlook for

SHI’s quantum equipment sector

remains positive. Our compact

cyclotrons are a key component in

the increasingly popular new PET

medical diagnosis systems and we

now hold the top market share in

Japan for medical ultra-compact

cyclotrons. One of these systems

was delivered to a university

hospital this year. The HIMAC

injection system, now in operation

at the Science and Technology

Agency’s National Institute of

Radiological Sciences, is Japan’s

largest complex beam accelerator.

Many large SHI paper making

machines went into operation

throughout Japan this year.

Incorporating the latest high-

speed, high-quality technologies,

these include a compact, high-

speed machine delivered to Iwaki

Daioh Paper Co., Ltd. which is

especially notable for its

environmental benefits, as it is a

resource-recycling paper machine

capable of using old papers

generated by a large city.

Moving sidewalk

Medical cyclotron system “CYPRIS®”

Paper making machine

Automated storage and shipping system

AnnualRep. 98-a 8/26 8/26/98 18:12 Page 7

8


The Ship Group builds a wide

range of ships such as tankers,

bulk carriers, naval vessels, and

work vessels, as well as various

marine structures.

The Steel Structure & Process

Equipment Group fabricates large

steel structures such as bridges,

water gates, and shield tunneling

machines, as well as process

equipment such as reactors with

agitators, mixing reactors and heat

exchangers. This group also

produces specialized equipment

for use in aerospace applications

and other high-tech fields.

The Precision Products Division

handles precision forgings such

as forged blades for jet engines,

cryogenic equipment and defense

equipment.


include Sumiju Tekko Koji Co., Ltd.,

a contractor of bridges and steel

structures and Diesel United, Ltd.

which supplies engines for ships.

Overall this category performed

well in FY1997, in spite of the Asian

economic crisis and an oversupply

of ships. A total of twelve ships

were ordered, one less than the

previous year, but an increase in

98,591110,583

101,857

(¥ Million)

96 97 98

18.3%

The Company marked its 100th Anniversary of shipbuilding

• Ships

• Offshore Facilities

• Bridge & Steel Structures

• Water Gates

• Shield Tunneling Machines

• Pressure Vessels

• Mixing Reactors

• Special Equipment

• Precision Forgings & Castings

• Cryogenic Equipment

• XY Stages

• Defense Equipment

• Engines for Ships

Main Products

Net Sales


Double Hull Aframax Tanker “OLYMPIC SPIRIT II”

Ship, Steel Structure & Precision Products

AnnualRep. 98-a 8/26 8/26/98 18:13 Page 8

9

orders for bridge-related products

pushed total order bookings to

¥116,808 million, an increase of

1.7% over the previous year.

Bridge-related sales were also up,

but since 10 of the 12 ships we

delivered in FY1997 were bulk

carriers, overall sales fell to

¥101,857 million, down 7.9% from

the previous year.

In commemoration of the 100th

Anniversary of the Ship Group, SHI

decided to start the next century

on a new footing by renaming the

Oppama Shipyard the Yokosuka

Shipyard. At the same time, efforts

were made to further improve our

ship technology using computer-

integrated systems such as

SUMIRE (Sumitomo Manufacturing

Innovation and Re-Engineering).

Among the ships delivered this

year were several Panamax-type

bulk carriers, the OLYMPIC SPIRIT II,

an Aframax tanker built for the

Onassis Group’s Simbel Maritime

Corporation, and the SEIUN MARU,

a training ship ordered by the

Institute for Sea Training of the

Ministry of Transport. The SEIUN

MARU was built to train sailors for

merchant vessels and to provide

embarkation training for sailors in

developing countries. The ship is

also being used for research and

development of ship technology.

Training ship “SEIUN MARU”

AnnualRep. 98-a 8/26 8/26/98 18:13 Page 9

10


“Akashi Strait Bridge”

AnnualRep. 98-a 8/26 8/26/98 18:13 Page 10

11

With more intense price

competition and declining orders in

the Bridge and Steel Structures

sector, SHI launched a bid to

increase market share by

strengthening our sales force and

introducing state-of-the-art

machinery and equipment to cut

production costs. This year we

fabricated and erected a stiffening

truss for the world’s longest

suspension bridge, the Akashi

Strait Bridge. Built for the Honshu

Shikoku Bridge Authority, the

Akashi Strait Bridge opened in

April, 1998. And in Yokohama, we

built a footbridge specially

designed to blend in with the

surrounding landscape.

Besides cutting production

costs and increasing sales

activities, we have also succeeded

in meeting customer demands for

faster delivery while maintaining

top quality. In the petro-chemical

field, for example, we built and

delivered several large reactors in

succession to petroleum refining

sites in Asia.

SHI is as much at home in the

field of high-precision technology

as it is in traditional heavy industry.

Our Cryogenic Equipment and

Precision Products sector

introduced a family of 4 K GM

cryocooler this year featuring three

different levels of cooling capacity,

enabling us to offer a full line of

these sophisticated products. In

other areas, the Ti6-4 alloy fan

blade created with our high-

precision forging technology was

adopted in a new engine (CF34-8C)

for small commercial aircraft, and

we introduced a high-precision XY

stage for high-precision, high-speed

micro processing using a linear

motor. One of these ultra-precision

stage systems was supplied to

Hitachi, Ltd. The new control algo-

rithm incorporated in this system

permits fast, stable measurement

of more intricate patterns.Yokohama Queen Mall Bridge

High-precision XY stage

AnnualRep. 98-a 8/26 8/26/98 18:13 Page 11

12


This sector is comprised of the

Power Transmission & Controls

Group which manufactures speed

reducers, variators and electric

control equipment; the Plastics

Machinery Division which

manufactures plastic processing

machines and precision molding

systems; and the Laser System

Division which manufactures YAG

lasers, excimer lasers, TEA-CO2

laser processing systems and LD

excitation solid lasers.


include Sumitomo (S.H.I.)

Construction Machinery Co., Ltd.

which manufactures various

construction machines; Sumitomo

Eaton Hydraulics Company, Ltd.

which handles hydraulic motors;

Sumitomo Yale Company, Ltd.

which manufactures and sells

forklift trucks; and Sumitomo Eaton

Nova Corporation which manu-

factures and sells ion implantation

equipment. Overseas, there’s

Sumitomo Machinery Corporation

of America and Sumitomo (SHI)

Cyclo Drive Germany, GmbH

which manufacture and sell

transmission equipment and speed

reducers, Lumonics Inc. which

manufactures and sells laser

equipment, and more.

While orders and sales

increased for speed reducers and

variators, plastic processing

machines and laser systems,

slumping demand for construction

machines pushed overall order

bookings for this sector down to

¥280,370 million, a decrease of

11.1% from the previous year.

Sales fell to ¥284,894 million, down

8% from the previous year.

Deregulation and globalization

in the power transmission and

electrical equipment industries

have spurred intense competition

in the speed reducer and variator

markets. High-performance SHI

products such as the BUDDYBOX

world standard series speed

reducer, the ALTAX IV-PLUS

compact variator series, and the

AF3100α general-purpose inverter

were marketed successfully. By

adapting our products to meet the

needs of different lifestyles, local

preferences, and industrial

requirements, we are confident that

(¥ Million)

253,902

309,811284,894

96 97 98

51.1%

Hyponic Drive®

• Power Transmission Equipment

• Electrical Equipment

• Plastic Injection Molding Machines

• Laser Processing Systems

• Construction Machinery

• Forklift Trucks

• Hydraulic Motors

Main Products

Net Sales


Mass-Produced Machinery

AnnualRep. 98-a 8/26 8/26/98 18:14 Page 12

13

we will establish ourselves as a

world leader in this field.

In view of this, we are planning

to establish a global sales and

production network to aim for the

world’s top market share and to

facilitate greater sales expansion

with on-site marketing and

production.

In the area of plastic

processing, we strengthened our

SGM product precision high cycle

lineup with a new ultra-

high cycle plastic processing

machine designed especially for

thin cases and containers. We also

completely redesigned the SHA

series to release the SHC series for

the global market, improving the

cycle, operability and maintenance

characteristics of these products.

With new applications of

plastics continuing to grow at a

phenomenal rate, results in this

sector were excellent. Shipments of

optical disc injection molding

machines reached their highest

level ever and order bookings and

sales of film processing machines

also set a new record. We also

entered the fast-growing market for

pre-form PET bottle molding

systems.

For the laser systems division,

demand for auto parts laser

welding systems remained robust

in 1997 and SHI is now able to

supply YAG lasers as standalone

units or integrated in production

systems. The Company recently

introduced a new top-of-the-line

YAG laser system, the MW4000

(MW-AUTO®), which boasts output

High-performance inverter “AF3100α”

Direct clamp hydraulic injection molding machine“SH160C”

Laser annealing system

AnnualRep. 98-a 8/26 8/26/98 18:14 Page 13

14


Ultra-precise high cycle injection molding machine for optical discs “SD30”

AnnualRep. 98-a 8/26 8/26/98 18:14 Page 14

15

energy of 4.5 kW, the world’s

highest.

The IMPACT series has also

been expanded with the addition of

the new LAVIA 600TW. With a

drilling capacity four times faster

than any existing laser systems, the

LAVIA 600TW is expected to

capture a large share of the market

for fine viahole drilling of high-

density multilayer printed circuit

boards.

In the excimer laser-related

field, we have developed a new

processing system for surface

modification called the Four Energy

Share Optical System. Sales of

laser annealing systems using high

power excimer lasers have also

begun. Aimed at the low-

temperature polysilicon TFT LCD

manufacturing market, sales of

these systems are expected to

grow rapidly in the future as the

LCD market expands.

Sumitomo (SHI) Construction

Machinery Co., Ltd. was severely

impacted by the changing

structure of demands and keen

price competition. To enable the

company to survive into the 21st

century, it is now being restructured

with a complete overhaul of the

management system designed to

improve performance and boost

the bottom line.

One typical example of the

restructuring is the elimination of

the separation between domestic

and overseas organizations and a

greater commitment to

implementing our global strategy.

Highlights include the negotiation

of a new business cooperation

agreement with Case

Corporation/USA in the field of

hydraulic excavators and a closer

relationship with our affiliate, Link-

Belt Construction Equipment

Company (LBCE)/USA in the field

of truck cranes.

Measures are also in place to

increase the efficiency and

effectiveness of the sales force and

to improve control procedures and

management organization. The

domestic manufacturing system is

now under review, enabling us to

get a head start on rejuvenating the

construction machinery business.

YAG laser system “MW4000”

Large-size crawler crane “CT15000”

AnnualRep. 98-a 8/26 8/26/98 18:14 Page 15

This sector consists of the

Engineering & Environment Group

and the New Business

Development Department. The

Engineering & Environment Group

contributes to environmental

protection and energy

conservation through the

construction of waste incineration

plants, boilers, wastewater

treatment plants, night soil

treatment plants, dust collectors,

industrial wastewater facilities, and

pulp & paper and chemical plants.

The New Business Development

Department handles a diverse

range of businesses which do not

fall within SHI’s traditional core

businesses, such as real estate

sales and marketing, and sales

and service of pleasure boats,

automobiles, and other products.


include Sumiju Environmental

Engineering, Inc. which carries out

maintenance and control services

for environmental facilities,

Lightwell Co., Ltd. which develops

and markets software, and

Ahlstom Sumiju K.K. which

designs and sells pulp

manufacturing equipment.

Far from being a drag on

business and economic activity,

new international concern for

protecting the environment and

developing more ecologically

sound products is making “green”

technology one of today’s hottest

growth areas. In FY1997, this

sector once again surpassed

previous results with order

bookings totaling ¥104,601 million,

an increase of 13% over the

previous year. Much of this

increase was due to major

contracts for large-scale

environmental systems and plants,

such as a municipal waste

incineration plant, a private power

generation plant for a cement

company, and an ash handling

system for an electric power

company. Despite the increase in

orders, however, sales were down

since no major projects (like the

municipal waste treatment plant)

were completed in FY1997. Total

sales for this sector were ¥74,980

million, down 14.8% from the

previous year.

With the focus of environmental

technology now on “zero

emissions”, we concentrated on

the development of technology to

remove hard-to-detect trace

amounts of harmful substances

and render them harmless.

16


68,44787,971

74,980

(¥ Million)

96 97 98

13.5%

• Chemical Process Equipment & Plants

• Pulp & Paper Manufacturing Machinery

• Power Generation System

• Air Pollution Control Equipment

• Municipal Water Treatment Plants

• Waste Treatment Plants

• Wastewater Treatment Plants

• Production High Separation Facilities

• Urban & Resort Development

• Marine & Leisure Equipment

• Import & Automobile Sales

• Software

Main Products

Net Sales


Environmental Systems, Plants & Others

AnnualRep. 98-a 8/26 8/26/98 18:15 Page 16

FY1997 saw the completion of

Japan’s largest industrial waste

treatment facility. Built for Dowa

Mining Co., Ltd., this plant

features a slagging rotary kiln

which incinerates and melts

industrial waste, reducing the

volume and converting it into

harmless slag. The system also

features heat recovery and air

pollution control, making this

facility one of the most advanced

of its kind, easily meeting Japan’s

tough new standards for dioxin

emission, as well as European flue

gas regulations.

Also introduced this year was

TOX-FREE, a system which

removes dioxin from exhaust gas

generated during waste

incineration by absorbing it with

activated char. Since the activated

char can be reused, running costs

for this system are only one fifth as

17

Industrial waste treatment facility

“TOX-FREE”, a system which removes dioxin from exhaust gas

AnnualRep. 98-a 8/26 8/26/98 18:16 Page 17

18


RDF (Refuse Derived Fuel) boiler flue gas treatment system

Ash Handling System

AnnualRep. 98-a 8/26 8/26/98 18:16 Page 18

19

much as with conventional dioxin

removal systems.

Another exciting new product

delivered this year was a pulse

energized electrostatic precipitator.

This extremely efficient dust

collection system features an

energy-saving design and control

functions to keep the specified

dust concentration at the outlet of

the electrostatic precipitator. It is

ideal for removing high

concentrations of airborne ash at

coal-burning power plants.

New water treatment systems

delivered in FY1997 included a

nitrogen removal system to purify

public water systems

contaminated by domestic

drainage systems and a

wastewater treatment plant. The

nitrogen removal system is part of

a seepage water high-level

processing plant we added to the

Soga wastewater treatment plant

in Chiba Prefecture. Using our

original activated sludge process

for denitrification, it is able to

efficiently remove high levels of

nitrogen components and is

expected to play a major role in

preserving the water quality of

Tokyo Bay.

In the area of power generation

systems, SHI received an order

from Sumitomo Osaka Cement

Co., Ltd. for a private power

generation system using a Foster

Wheeler circulating fluidized bed

boiler. The largest in the Japanese

cement industry, this boiler makes

it possible to use inexpensive, low-

quality RDF (Refuse Derived Fuel)

or TDF (Tire Derived Fuel) for

mixed fuel burning.

In the chemical field, SHI

received an order from Dainippon

Ink and Chemicals, Inc. for a

polystyrene plant. When

completed, it will be Japan’s

largest and most advanced plant

for the production of general-

purpose grade polystyrene.

Wastewater treatment plant

Trichloroethylene removal system

AnnualRep. 98-a 8/26 8/26/98 18:16 Page 19

20


R&D is one of the most crucial

components of SHI’s success,

helping to enhance the

competitiveness of our products

and expand our market. SHI R&D

focuses not only on new product

development and development of

advanced technology, but also on

basic technologies and the

improvement of existing products

and technologies.

Over the past year, SHI has

continued to push forward with

research in cutting-edge

technology such as “Aurora® 2”,

ITO and superconductivity. We

have also expanded our efforts in

the environmental field, paying

particular attention to zero

emission technology where we

have achieved some very exciting

results.

New “Aurora® 2” underway

SHI continued to refine its

advanced “Aurora® 2” ultra-

compact Synchrotron Radiation

system (SR ring) and a new

version known as “Aurora® 2S” is

now under development.

Semiconductor industries are

especially interested in this

version of the popular SR ring

since it is being optimized for X-

ray lithography, making it an

excellent candidate for advanced

micro-machining of ULSI chips

with more than 1 GB of DRAM.

Performance tests of another

type of SR ring — the “Aurora®

2D” — were also carried out.

While maintaining the compact

design of the standard “Aurora® 2”

rings, the “Aurora® 2D” is able to

Research & Development

Compact “Aurora® 2D” with superconducting wiggler

Super-compact SR ring “Aurora® 2S”

AnnualRep. 98-a 8/26 8/26/98 18:16 Page 20

accommodate a variety of

insertion devices (IDs), making it

an appropriate tool for scientific

research. In our tests, we inserted

a superconducting (SC) wiggler

and were able to successfully

inject, accelerate, and store

electron beams, establishing for

the first time that even compact

SR rings can support SC IDs. An

“Aurora® 2D” system called

HiSOR which uses two undulators

(rather than an SC wiggler) is now

in service at Hiroshima University’s

Synchrotron Radiation Center.

Development of liquid helium-

free superconducting magnet

for neutron scattering

experiments

In cooperation with the Japan

Atomic Energy Research Institute

(JAERI), SHI developed the

world’s first cryocooler-cooled 10 T

superconducting magnet for use

in neutron scattering experiments.

Consisting of an Nb3Sn coil, an

NbTi coil and Bi-based

superconducting bulk current

leads, with 4 K Gifford-McMahon

cryocoolers and a cryostat, this

magnet continuously generates a

magnetic field of 10 T in a 50 mm

vertical room temperature bore

without using liquid helium. A

horizontal gap of 20 mm allows

penetration of the neutron beam.

Expected to contribute

significantly to the advancement of

JAERI research, this new super-

conducting magnet weighs 280

kg, and has a height of 760 mm

and an outer diameter of 600 mm.

New ITO Ion Plating System

Debuts — Cu Ion Plating System

Developed

This year, our new ITO ion plating

system made its debut in a pilot

manufacturing program. Based on

exclusive plasma technology

developed by SHI, this system is

ideal for the production of Flat

Panel Displays as it offers

performance far superior to that of

conventional sputtering

equipment. Features of the ion

plating system include:

● High throughput due to high

deposition rate

● Good film quality, i.e. low

resistivity

● Cost efficient use of source

material

We are also now at work

developing an advanced copper

ion plating system for application

in ULSI manufacturing. With the

wiring pitches of ULSI chips

becoming higher, the fill

characteristics of grooves and

contact holes are making thin-film

deposition more difficult. Copper

is considered a promising wiring

21

Liquid helium-free superconducting magnet

ITO ion plating system

AnnualRep. 98-a 8/26 8/26/98 18:16 Page 21

22


material for the next generation of

ULSI chips since it features lower

electrical resistivity and higher

electro-migration resistance than

aluminum alloys. Some of the

major characteristics of the

copper ion plating system include:

● High-speed film deposition

● Good filling capability for holes

with high aspect ratios

● Deposition at low substrate

temperatures

● Coverage of large area

substrates (300 mm Si wafers)

● Low-cost source material

URT ion plating is a powerful

technique for thin-film deposition

and has proven promising in the

application of a variety of

materials. The copper ion plating

system, in particular, has the

potential to enable single-step

deposition of copper inter-

connects in ULSI manufacturing.

Development of New Thermal

Treatment Technology for

Municipal Solid Waste

Roughly seventy-five percent of

the nearly 50 million tons of

municipal solid waste (MSW)

generated annually in Japan is

incinerated, while the rest is

dumped directly into landfills.

However, a recent amendment to

the Air Pollution Prevention Act

requires reductions of toxic

emissions from furnaces and/or

incinerators — for instance, dioxin

levels in gas from MSW

incinerators are limited to 0.1

ngTEQ/m3. At the same time, in an

effort to further conserve landfill

space and to protect soil and

groundwater quality, residual ash

produced by MSW incinerators is

supposed to be converted to

insoluble slag for use as Refuse

Derived Material.

These new regulations have

spurred intense interest in SHI’s

new MSW thermal treatment

technology which converts residue

to molten slag using waste-

generated fuel gas. By effectively

harnessing the potential energy of

MSW, this would allow more

productive use of waste while

simultaneously keeping dioxin

emissions at levels below those

specified by the new regulations.

SHI is actively working to meet

these new demands and signed

an agreement with Germany’s

Krupp Uhde GmbH to jointly

develop gasification technology

which would be combined with the

ash melting technology which SHI

developed based on ABB

Enertech’s (Switzerland)

Hazardous Waste Incineration

Technology.Slagging rotary kiln which incinerates and meltsindustrial waste

Gasification reactor designed by Krupp Uhde GmbH

SEM image of Cu filling displayed on a PC

1 µ m

AnnualRep. 98-a 8/26 8/26/98 18:16 Page 22

23

F I N A N C I A L S T A T E M E N T S

Consolidated Balance Sheets········································ 24

Consolidated Statements of Income······························ 26

Consolidated Statements of Stockholders’ Equity········· 27

Consolidated Statements of Cash Flows······················· 28

Notes to Consolidated Financial Statements················· 29

CONTENTS

AnnualRep. 98-b 8/26 for PDF 8/26/98 10:41 Page 23

24


ASSETSMillions of Thousands of

yen U.S. dollars (Note 1)

1998 1997 1998

Current assets:

Cash and time deposits ······················································································· ¥ 35,403 ¥ 41,018 $ 268,205

Marketable securities (Notes 3 and 10)································································ 39,396 44,666 298,455

Trade receivables:

Notes receivable (Note 3) ················································································ 119,117 128,007 902,401

Accounts receivable ························································································ 146,000 152,254 1,106,061

Allowance for doubtful accounts ····································································· (2,405) (2,377) (18,220)

Inventories (Note 2) ······························································································· 200,256 164,382 1,517,091

Prepaid expenses and other current assets························································· 28,792 31,950 218,121

Total current assets ·························································································· 566,559 559,900 4,292,114

Property, plant and equipment (Note 3):

Land······················································································································· 27,115 25,476 205,417

Buildings and yards ······························································································ 124,527 121,177 943,386

Machinery and equipment ···················································································· 173,869 168,367 1,317,189

Construction in progress······················································································· 2,802 3,952 21,228

328,313 318,972 2,487,220

Less accumulated depreciation ··········································································· 199,556 190,576 1,511,788

128,757 128,396 975,432

Investments, long-term loans and other assets:

Unconsolidated subsidiaries and affiliated companies (Note 10) ······················· 25,379 19,963 192,265

Other long-term loans receivable and investments·············································· 7,573 10,270 57,371

Other assets ·········································································································· 18,945 18,205 143,523

Allowance for doubtful accounts ·········································································· (2,447) (1,611) (18,538)

49,450 46,827 374,621

Foreign currency translation adjustment ······························································ 3,251 4,968 24,629

¥ 748,017 ¥ 740,091 $ 5,666,796

Consolidated Balance SheetsMarch 31, 1998 and 1997


25

LIABILITIES AND STOCKHOLDERS’ EQUITYMillions of Thousands of

yen U.S. dollars (Note 1)

1998 1997 1998

Current liabilities:

Bank loans (Note 3)······························································································· ¥ 147,357 ¥ 149,977 $ 1,116,341

Long-term debt due within one year (Note 3) ······················································ 54,666 51,694 414,136

Commercial paper································································································· 20,000 20,000 151,515

Trade payables:

Notes payable·································································································· 63,115 59,484 478,144

Accounts payable ···························································································· 81,808 81,952 619,758

Advance payments received on contracts··························································· 95,325 89,325 722,159

Accrued expenses and other current liabilities···················································· 52,632 53,648 398,727

Total current liabilities······················································································· 514,903 506,080 3,900,780

Long-term debt due after one year (Note 3) ·························································· 143,900 142,223 1,090,152

Employees’ severance and retirement benefits (Note 4) ····································· 3,172 2,918 24,030

Other long-term liabilities ························································································ 1,347 989 10,205

Minority interests······································································································ 5,786 11,758 43,833

Contingent liabilities (Note 7)

Stockholders’ equity (Note 6):

Common stock, par value ¥50 per share:

Authorized — 1,200,000 thousand shares

Issued — 588,697 thousand shares··················································· 30,872 30,872 233,879

Capital surplus ······································································································ 26,752 26,752 202,667

Legal reserve········································································································· 5,931 5,751 44,932

Retained earnings ································································································· 15,355 12,749 116,325

78,910 76,124 597,803

Less treasury stock at cost, 2,726 shares (2,774 shares in 1997) ····················· 1 1 7

Total stockholders’ equity················································································· 78,909 76,123 597,796

¥ 748,017 ¥ 740,091 $ 5,666,796

See accompanying notes.


26


Consolidated Statements of IncomeYears ended March 31, 1998 and 1997

Millions of Thousands of yen U.S. dollars (Note 1)

1998 1997 1998

Net sales (Note 8)······································································································ ¥ 556,786 ¥ 606,537 $ 4,218,076Costs and expenses (Note 8):

Cost of sales ········································································································· 460,254 505,636 3,486,773Selling, general and administrative expenses······················································ 75,729 78,367 573,705

535,983 584,003 4,060,478

Operating income (Note 8)······················································································· 20,803 22,534 157,598

Other income (expense):Interest and dividend income ··············································································· 2,470 3,765 18,712Interest expense···································································································· (8,455) (10,255) (64,053)Loss on devaluation of securities·········································································· (4,123) (1,910) (31,235)Gain on sale of securities – net ············································································· 3,215 329 24,356Gain on sale of property, plant and equipment – net ·········································· 415 34 3,144Foreign currency exchange gain (loss) ································································ 540 (430) 4,091Other – net ············································································································ (2,070) (126) (15,681)

(8,008) (8,593) (60,666)

Income before income taxes ··················································································· 12,795 13,941 96,932Income taxes (Note 5) ······························································································ 9,666 8,063 73,227

3,129 5,878 23,705

Minority interests in net income of consolidated subsidiaries··························· (97) (766) (735)Amortization of difference between costs and net assets acquired·················· (14) (21) (106)Equity in earnings of affiliated companies ···························································· 1,595 832 12,083Net income ······································································································································· ¥ 4,613 ¥ 5,923 $ 34,947

Yen U.S. dollars (Note 1)

1998 1997 1998Amounts per share of common stock:

Net income············································································································· ¥ 7.83 ¥ 10.06 $ 0.06Diluted net income································································································· 7.65 Not diluted 0.06Cash dividends applicable to the year ································································· 3.00 3.00 0.02



27

Consolidated Statements of Stockholders’ EquityYears ended March 31, 1998 and 1997

Millions of yen

Number of shares of common stock Common Capital Legal Retained

(thousand) stock surplus reserve earnings

Balance at March 31, 1996······················································ 588,697 ¥ 30,872 ¥ 26,752 ¥ 5,751 ¥ 7,649

Decrease in retained earnings due to change in consolidated subsidiaries ·········································· — — — — (806)

Net income ··········································································· — — — — 5,923

Bonuses to directors and statutory auditors························ — — — — (17)

Balance at March 31, 1997······················································ 588,697 30,872 26,752 5,751 12,749

Decrease in retained earnings due to change in consolidated subsidiaries and companiesaccounted for by the equity method ······························ — — — — (12)

Net income ·········································································· — — — — 4,613

Cash dividends paid (¥3 per share)···································· — — — — (1,766)

Bonuses to directors and statutory auditors························ — — — — (49)

Transfer to legal reserve······················································· — — — 180 (180)

Balance at March 31, 1998 ······················································ 588,697 ¥ 30,872 ¥ 26,752 ¥ 5,931 ¥ 15,355

Thousands of U.S. dollars (Note 1)

Common Capital Legal Retainedstock surplus reserve earnings

Balance at March 31, 1996 ······················································································· $ 233,879 $ 202,667 $ 43,568 $ 57,947

Decrease in retained earnings due to change in consolidated subsidiaries········································································· — — — (6,106)

Net income ············································································································ — — — 44,871

Bonuses to directors and statutory auditors························································· — — — (129)

Balance at March 31, 1997 ······················································································· 233,879 202,667 43,568 96,583

Decrease in retained earnings due to change in consolidated subsidiaries and companiesaccounted for by the equity method ······························································· — — — (91)

Net income ············································································································ — — — 34,947

Cash dividends paid (¥3 per share) ····································································· — — — (13,379)

Bonuses to directors and statutory auditors························································· — — — (371)

Transfer to legal reserve························································································ — — 1,364 (1,364)

Balance at March 31, 1998 ······················································································· $ 233,879 $ 202,667 $ 44,932 $ 116,325



28


Consolidated Statements of Cash FlowsYears ended March 31, 1998 and 1997

Millions of Thousands of yen U.S. dollars (Note 1)

1998 1997 1998Cash flows from operating activities:

Net income ··········································································································· ¥ 4,613 ¥ 5,923 $ 34,947Adjustments to reconcile net income to net cash

provided by operating activities:Depreciation····································································································· 15,767 15,272 119,447Provision for employees’ severance and retirement benefits·························· 254 350 1,924Equity in earnings of unconsolidated subsidiaries and affiliated companies················································································ (1,595) (832) (12,083)

Decrease (increase) in minority interests ························································ (5,972) 1,369 (45,242)Bonuses to directors and statutory auditors ··················································· (49) (17) (371)

Changes in operating assets and liabilities:Decrease (increase) in notes and accounts receivable ································· 15,144 (29,346) 114,727Increase (decrease) in inventories ·································································· (35,874) 9,319 (271,773)Increase in notes accounts payable ······························································· 3,493 7,644 26,462Decrease (increase) in other current assets ··················································· 3,158 (18,015) 23,924Increase in other current liabilities··································································· 4,984 26,367 37,758Other – net········································································································ (3,407) (5,531) (25,810)Net cash provided by operating activities······················································· 516 12,503 3,910

Cash flows from investing activities:Payments for purchases of property, plants and equipment ······························· (15,966) (19,654) (120,955)Proceeds from sale of property, plants and equipment ······································· 3,464 3,768 26,243Payments for investment securities ······································································ (593) (2,710) (4,492)Proceeds from sale of investment securities ························································ 3,279 1,549 24,841Decrease in marketable securities ······································································· 5,270 2,033 39,924Increase (decrease) in long-term loans receivable and investments·················· 348 (240) 2,636

Net cash used in investing activities ······························································· (4,198) (15,254) (31,803)

Cash flows from financing activities:Increase in long-term debt···················································································· 56,935 40,293 431,326Decrease in long-term debt ·················································································· (54,482) (35,691) (412,742)Decrease in bank loans ························································································ (2,620) (6,141) (19,849)Cash dividends paid ····························································································· (1,766) — (13,379)

Net cash used in financing activities······························································· (1,933) (1,539) (14,644)Net decrease in cash and time deposits ························································ (5,615) (4,290) (42,537)

Cash and time deposits at beginning of year ······················································ 41,018 45,308 310,742Cash and time deposits at end of year ·································································· ¥ 35,403 ¥ 41,018 $ 268,205

Supplemental disclosures of cash flow information:Cash paid during the year for:

Interest·············································································································· ¥ 8,315 ¥ 10,841 $ 62,992Income taxes···································································································· 8,256 5,819 62,545


29

1. Significant accounting policies

Basis of consolidated financial statementsThe Company, a Japanese corporation, maintains its records and

prepares its financial statements in Japanese yen in accordance withaccounting principles generally accepted in Japan. The accompanyingconsolidated financial statements are based on the financial statementsthat are prepared for Japanese domestic purposes, in accordance withthe provisions of the Securities and Exchange Law of Japan, and filedwith the Minister of Finance of Japan.

In preparing the accompanying financial statements, certainmodifications, including presentation of the statements of stockholders'equity and cash flows, have been made to facilitate understanding byreaders outside Japan.

The financial statements are stated in Japanese yen. The translation ofthe Japanese yen amount into U.S. dollars is included solely for theconvenience of readers using the prevailing exchange rate at March 31,1998, which was ¥132 to U.S.$1. The convenience translations shouldnot be construed as representations that the Japanese yen amountshave been, could have been, or could in the future be converted intoU.S. dollars at this or any other rate of exchange.

Principles of consolidationThe consolidated financial statements include the accounts of the

Company and its significant subsidiaries (the “Companies”). Allsignificant intercompany transactions and accounts have beeneliminated.

Investments in 20% — 50% owned significant affiliated companies areaccounted for by the equity method.

The difference between costs and net assets acquired in subsidiariesand affiliated companies, consolidated or accounted for by the equitymethod, are deferred and amortized over 5 years so long as the amountsare significant. In case of amounts being insignificant, such amounts arecharged or credited to income as incurred.

Marketable securitiesMarketable equity securities are carried principally at the lower of

moving average cost or market. Other marketable securities are carriedprincipally at cost based on the moving average method.

InventoriesWork in process is stated principally at cost based on specific cost

basis. Finished products, semi-finished products, raw materials andsupplies are stated principally at cost based on average method.

Property, plant and equipmentProperty, plant and equipment are stated at cost.Depreciation is determined by the declining balance method at rates

based on estimated useful lives of respective assets.

Allowance for doubtful accountsThe Company and domestic consolidated subsidiaries provide for

doubtful accounts principally at an estimated amount of probable baddebt plus the maximum amount permitted to be charged to incomeunder Japanese tax regulations. Foreign consolidated subsidiariesprovide for doubtful accounts at an estimated amount of probable baddebt.

Employees’ severance and retirement benefitsThe Company has a non-contributory funded pension plan covering all

employees. In general, the plan provides for pension payments for aperiod of 15 years to employees leaving the Company after 20 or moreyears of service.

Under certain conditions, participants may elect to receive the currentvalue of their vested benefits in a lump-sum distribution. If employeeswith one or more years, but less than 20 years, of service leave theCompany, they receive a lump-sum distribution.

Employees of certain domestic and overseas consolidated subsidiariesare covered primarily by funded pension plans. Employees of otherdomestic consolidated subsidiaries are covered primarily by unfundedretirement benefit plans.

Foreign currency translationCash and current receivables and payables denominated in foreign

currencies are translated at the exchange rate prevailing on balancesheet date. Other assets and liabilities denominated in foreign currenciesare translated at the historical exchange rate.

Long-term debt with long-term forward exchange contracts istranslated at the contracted forward rate. Unrealized exchange gains onforward exchange contracts are deferred and amortized over the periodsof contracts.

Financial statements of overseas subsidiaries and affiliated companiesare translated into Japanese yen at the exchange rate prevailing onbalance sheet date for all items except that intercompany transactionsand balances are translated at the historical exchange rate. Translationdifferences resulting from translation of the financial statements ofconsolidated subsidiaries are deferred in the balance sheet and those ofthe companies accounted for by the equity method are included inretained earnings.

SalesSales are recognized on a delivery basis.

Selling, general and administrative expensesThe Company allocates a certain portion of selling, general and

administrative expenses (expenses other than those relating tomanagement control division which are corporate wide expenses) towork in process.

Research and developmentResearch and development expenses are charged to income when

incurred.

Income taxesIncome taxes are provided in amounts currently payable based on

taxable income for each period. Deferred income taxes pertaining totemporary differences between financial and tax reporting purposes arenot recognized except for overseas subsidiaries.

Bond issuance expenseBond issuance expense is charged to income in the year incurred.

Amounts per shareThe computation of net income per share of common stock is based on

the weighted average number of shares of common stock outstandingduring each fiscal year.

The diluted net income per share is calculated assuming theconversion of all dilutive convertible bonds at the time of their issuance.

Cash dividends applicable to the year represent the actual amountdeclared as applicable to the respective years.

Notes to Consolidated Financial StatementsMarch 31, 1998 and 1997


30


3. Bank loans, commercial paper and long-term debt

Bank loans at March 31, 1998 and 1997 consisted of short-term notes, bearing interest principally at 1.2% and 1.1% per annum, respectively.The Company has entered into a yen domestic commercial paper program with a current maximum facility amount of ¥30,000 million ($227,273thousand). The amount outstanding under this program is subject to variation from time to time. At March 31, 1998 and 1997, commercial paper bore anaverage annual interest rate of 1.03% and 0.55%, respectively.Long-term debt at March 31, 1998 and 1997 consisted of the following:

Millions of Thousands of yen U.S. dollars

1998 1997 1998

3.5% domestic mortgage bonds due in March 1998················································ ¥ — ¥ 500 $ —Euro-yen floating rate notes due in March 1998························································ — 6,000 —Euro-yen 3.4% notes due in June 1998 ····································································· 6,000 6,000 45,4543.9% domestic bonds due in February 2004 ···························································· 8,000 8,000 60,6063.0% domestic bonds due in January 2005 ······························································ 3,000 — 22,727U.S. dollar variable rate demand industrial development revenue bonds

due in January 2008······························································································ 991 931 7,507U.S. dollar variable rate demand industrial development revenue bonds

due in January 2009······························································································ 792 745 6,000U.S. dollar variable rate demand industrial development revenue bonds

due in September 2010························································································· 264 248 2,0001.8% domestic mortgage bonds due in January 2000 ············································· 1,000 1,000 7,5761.9% domestic mortgage bonds due in February 2000 ··········································· 500 500 3,788Euro-yen floating rate notes due in September 2000 ················································ 7,500 7,500 56,818Euro-yen floating rate notes due in September 2001 ················································ 7,500 7,500 56,818Euro-yen convertible bonds due in July 2001 ··························································· 10,000 — 75,7582.8% domestic bonds due in August 2001································································ 2,000 2,000 15,152U.S. dollar loans from banks due serially through July 1999 with

interest ranging from 6.1% to 13.5% in 1998 and 5.8% to 6.4%in 1997 ··················································································································· 5,623 7,602 42,599

Loans principally from banks and insurance companies due serially through September 2014 with interest ranging from 1.2% to 7.0% in 1998 and 1.0% to 7.0% in 1997:

Secured············································································································ 8,928 8,057 67,636Unsecured········································································································ 136,468 137,334 1,033,849

198,566 193,917 1,504,288Less amount due within one year ·············································································· 54,666 51,694 414,136

¥ 143,900 ¥ 142,223 $ 1,090,152

2. Inventories

Inventories at March 31, 1998 and 1997 were as follows:


1998 1997 1998

Finished products and semi-finished products ························································· ¥ 48,045 ¥ 47,266 $ 363,977Work in process ·········································································································· 142,395 106,276 1,078,750Raw materials and supplies ······················································································· 9,816 10,840 74,364

¥ 200,256 ¥ 164,382 $ 1,517,091


31

The annual maturities of long-term debt at March 31, 1998 were asfollows:

Year ending Millions of Thousands of March 31, yen U.S. dollars

1999···················································· ¥54,666 $414,1362000···················································· 29,203 221,2352001···················································· 42,679 323,3262002···················································· 32,781 248,3412003···················································· 20,122 152,439Thereafter ··········································· 19,116 144,818

At March 31, 1998, assets pledged as collateral for bank loans,secured long-term loans from banks and insurance companies anddomestic mortgage bonds were as follows:

Millions of Thousands ofyen U.S. dollars

Notes receivable ································ ¥ 4,070 $ 30,833Marketable equity securities, at

carrying value································ 7,577 57,401Property, plant and equipment,

at cost less accumulated depreciation ·································· 6,542 49,561

¥18,189 $137,795

4. Employees’ severance and retirement benefits

Unamortized prior service costs under the non-contributory fundedpension plan, less related balance sheet accruals, amounted to ¥46,748million ($354,152 thousand) at September 30, 1997, the most recentvaluation date.

Total charges with respect to employees’ severance and retirementbenefits were ¥6,056 million ($45,879 thousand) in 1998 and ¥5,727million ($43,386 thousand) in 1997.

5. Income taxes

Income taxes are composed of corporation tax, inhabitants taxes andenterprise tax, which normally would result in a standard effective tax rateof approximately 52% in 1998 and 1997.

Differences between standard effective tax rate and actual effective taxrates are attributable primarily to temporary differences in recognizingrevenues and expenses for financial statements and tax return purposes.

6. Stockholders’ equity

Under the Commercial Code of Japan, amounts equal to at least 10%of cash dividends and bonuses to directors and statutory auditors mustbe set up as a legal reserve until the reserve equals 25% of commonstock. This reserve is not available for dividends but may be used toreduce a deficit by resolution of the stockholders or may be capitalizedby resolution of the Board of Directors.

7. Contingent liabilities

The Companies were contingently liable as endorsers of trade notesreceivable discounted with banks in the amount of ¥1,595 million($12,083 thousand) at March 31, 1998. In addition, at the same date theCompanies were contingently liable as guarantors of bank loans tounconsolidated subsidiaries and affiliated companies in the amount of¥5,171 million ($39,174 thousand) (net of guarantees by co-guarantors)and to others in the amount of ¥11,892 million ($90,091 thousand).


32


8. Segment information(A) The Companies’ primary business activities include (1) industrial machinery, (2) ship, steel structure & other specialized equipment, (3) mass-

produced machinery and (4) environmental protection facilities, plants & others.A summary of net sales, costs and expenses, and operating income by segment of business activities for the years ended March 31, 1998 and 1997,and a summary of identifiable assets, depreciation expense and capital expenditures by segment of business activities for the years ended March 31,1998 and 1997 is as follows:

Millions of yen

Industrial Ship, steel Mass-produced Environmental Elimination Consolidatedmachinery structure & machinery protection and/or

other specialized facilities, plants corporate1998 equipment & othersI Sales and operating income

Sales:Unaffiliated customers ¥ 95,055 ¥ 101,857 ¥ 284,894 ¥ 74,980 ¥ — ¥ 556,786Intersegment 210 791 251 2,706 (3,958) —Total 95,265 102,648 285,145 77,686 (3,958) 556,786

Costs and expenses 95,082 99,670 268,867 76,322 (3,958) 535,983Operating income ¥ 183 ¥ 2,978 ¥ 16,278 ¥ 1,364 ¥ — ¥ 20,803

II Identifiable assets ¥ 100,564 ¥ 142,578 ¥ 363,294 ¥ 86,727 ¥ 54,854 ¥ 748,017Depreciation expense 1,694 3,007 9,530 1,575 — 15,806Capital expenditures 1,247 2,597 10,009 2,356 — 16,209

1997I Sales and operating income

Sales:Unaffiliated customers ¥ 98,172 ¥ 110,583 ¥ 309,811 ¥ 87,971 ¥ — ¥ 606,537Intersegment 988 131 116 1,503 (2,738) —Total 99,160 110,714 309,927 89,474 (2,738) 606,537

Costs and expenses 100,145 107,501 293,605 85,490 (2,738) 584,003Operating income ¥ (985) ¥ 3,213 ¥ 16,322 ¥ 3,984 ¥ — ¥ 22,534

II Identifiable assets ¥ 100,231 ¥ 136,913 ¥ 366,588 ¥ 74,079 ¥ 62,280 ¥ 740,091Depreciation expense 2,040 3,316 9,160 863 — 15,379Capital expenditures 1,632 2,812 14,754 1,535 — 20,733

Thousands of U.S. dollars

Industrial Ship, steel Mass-produced Environmental Elimination Consolidatedmachinery structure & machinery protection and/or

other specialized facilities, plants corporate1998 equipment & othersI Sales and operating income

Sales:Unaffiliated customers $ 720,114 $ 771,644 $ 2,158,288 $ 568,030 $ — $ 4,218,076Intersegment 1,591 5,993 1,901 20,500 (29,985) —Total 721,705 777,637 2,160,189 588,530 (29,985) 4,218,076

Costs and expenses 720,319 755,076 2,036,871 578,197 (29,985) 4,060,478Operating income $ 1,386 $ 22,561 $ 123,318 $ 10,333 $ — $ 157,598

II Identifiable assets $ 761,849 $ 1,080,136 $ 2,752,227 $ 657,023 $ 415,561 $ 5,666,796Depreciation expense 12,833 22,780 72,197 11,932 — 119,742Capital expenditures 9,447 19,674 75,826 17,849 — 122,796

Identifiable assets under the elimination or corporate column primarily consist of cash and time deposits and marketable securities.


33

(B) Information by geographic area for the year ended March 31, 1998 and 1997 is as follows:

Millions of yen

EliminationJapan North America Other areas and / or Consolidated

1998 corporateI Sales and operating income

Sales:Unaffiliated customers ¥ 482,641 ¥ 65,253 ¥ 8,892 ¥ — ¥ 556,786Intersegment 28,239 714 1,173 (30,126) —Total 510,880 65,967 10,065 (30,126) 556,786

Costs and expenses 494,963 61,026 10,120 (30,126) 535,983Operating income ¥ 15,917 ¥ 4,941 (55) ¥ — ¥ 20,803

II Identifiable assets ¥ 641,273 ¥ 56,177 11,391 ¥ 39,176 ¥ 748,017

Millions of yen

EliminationJapan Overseas and / or Consolidated


Sales:Unaffiliated customers ¥ 530,217 ¥ 76,320 ¥ — ¥ 606,537Intersegment 18,800 3,704 (22,504) —Total 549,017 80,024 (22,504) 606,537

Costs and expenses 531,081 75,426 (22,504) 584,003Operating income ¥ 17,936 ¥ 4,598 ¥ — ¥ 22,534

II Identifiable assets ¥ 606,682 ¥ 69,198 ¥ 64,211 ¥ 740,091


EliminationJapan North America Other areas and / or Consolidated


Sales:Unaffiliated customers $ 3,656,371 $ 494,341 $ 67,364 $ — $ 4,218,076Intersegment 213,932 5,409 8,886 (228,227) —Total 3,870,303 499,750 76,250 (228,227) 4,218,076

Costs and expenses 3,749,720 462,318 76,667 (228,227) 4,060,478Operating income $ 120,583 $ 37,432 $ (417) $ — $ 157,598

II Identifiable assets $4, 858,129 $ 425,583 $ 86,296 $ 296,788 $ 5,666,796

Identifiable assets under the elimination or corporate column primarily consisted of cash and time deposits and marketable securities. Other areas include the United Kingdom, Germany and Singapore.

(C) Overseas sales of the Companies for the years ended March 31, 1998 and 1997

1998 Millions of yen

To North America To Asia To other areas Total

Overseas Sales ¥ 77,896 ¥ 56,540 ¥ 25,156 ¥ 159,59214.0 (%) 10.2 (%) 4.5 (%) 28.7 (%)


Overseas Sales $ 590,121 $ 428,333 $ 190,576 $ 1,209,030

Other areas include the United Kingdom and Germany.

Overseas sales of the Companies for the year ended March 31, 1997 was ¥178,778 million ($1,354,379 thousand) and accounted for 29.5% ofconsolidated net sales. Overseas sales consist of export sales by the Company and its domestic consolidated subsidiaries as well as sales byoverseas consolidated subsidiaries.


9. Information for certain leases

Lease payments and lease income under finance leases, which are accounted for in the same manner as operating leases, at March 31, 1998 and 1997,respectively, were as follows.


1998 1997 1998

Lease payments ¥ 4,470 ¥ 3,851 $ 33,864Lease income 661 780 5,008

Future minimum lease payments as lessees and receipts as lessors, both inclusive of interest, at March 31, 1998 were ¥12,660 million ($95,909thousand) and ¥1,860 million ($14,091 thousand), respectively, and amounts due within one year were ¥8,306 million ($62,924 thousand) and ¥633 million($4,795 thousand), respectively.

10. Market value information for securities of the Company

Book value, market value and net unrealized gains of quoted securities of the Company at March 31, 1998 and 1997, respectively, were as follows:


1998 1997 1998

Book value:Current ¥ 37,396 ¥ 41,940 $ 283,303Non-current 2,811 2,811 21,296

40,207 44,751 304,599

Market value:Current 57,496 67,809 435,576Non-current 4,017 7,378 30,432

61,513 75,187 466,008Net unrealized gains ¥ 21,306 ¥ 30,436 $ 161,409

11. Derivative transactions of the Company

The Company enters into forward currency exchange contracts and interest rate swap contracts as derivative financial instruments. The Company dealswith forward currency exchange transactions to hedge exchange rate risk of monetary receivables and payables denominated in foreign currencies inorder to obtain stabilized profit. Interest rate swap transactions are made in order to minimize the risk of interest rate on borrowings changing upward.

The Company deals with financial institutions with higher credit ratings as counterparty of transactions to avoid credit risk exposure. Details oftransactions are reviewed and approved by responsible officials of the Company in accordance with the Company’s internal regulations.

At March 31, 1998, the Company had open forward exchange contracts to sell U.S. dollars and Belgian francs equivalent to ¥6,223 million ($47,144thousand) in aggregate, and to buy U.S. dollars and Finnish markka equivalent to ¥1,741 million ($13,189 thousand) in aggregate at the futures exchangerate at March 31, 1998. Net unrealized exchange loss at March 31, 1998 amounted to ¥267 million ($2,023 thousand). At the same date the Companyhad interest rate swap agreements to convert interest on long-term debt of ¥7,000 million ($53,030 thousand) from fixed to variable rate and of ¥17,000million ($128,788 thousand) from variable to fixed rate which resulted in an unrealized loss of ¥749 million ($5,674 thousand).

12. Subsequent events

At June 26, 1998 annual meeting, the Company’s stockholders approved (1) payment of a year-end cash dividend of ¥3.00 ($0.02) per shareaggregating ¥1,766 million ($13,379 thousand) to stockholders of record as of March 31, 1998, (2) payment of bonuses to directors and statutory auditorsaggregating ¥30 million ($227 thousand) and (3) transfer to legal reserve of ¥180 million ($1,364 thousand) from retained earnings.

At the same meeting, the Company’s stockholders also approved the change in articles of incorporation of the Company, that the Company may acquireits own shares after June 26, 1998, upon resolution of the Board of Directors, within the maximum limit of (1) 58,000 thousand shares to retire such sharesand to offset related purchase costs against retained earnings and (2) 82,000 thousand shares at less than ¥24,900 million ($188,636 thousand) to retireshares and to offset costs against capital surplus.

34



35

R E P O R T O F I N D E P E N D E N T P U B L I C A C C O U N T A N T S

To the Board of Directors ofSumitomo Heavy Industries, Ltd.

We have audited the accompanying consolidated balance sheets of Sumitomo Heavy Industries, Ltd. (a Japanese

corporation) and subsidiaries as of March 31, 1998 and 1997, and the related consolidated statements of income,

stockholders’ equity and cash flows for the years then ended, expressed in Japanese yen. Our audits were made in

accordance with auditing standards generally accepted in Japan and, accordingly, included such tests of the accounting

records and such other auditing procedures as we considered necessary in the circumstances.

In our opinion, the consolidated financial statements referred to above present fairly the consolidated financial position of

Sumitomo Heavy Industries, Ltd. and subsidiaries as of March 31, 1998 and 1997, and the consolidated results of their

operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in

Japan applied on a consistent basis.

Also, in our opinion, the U.S. dollar amounts in the accompanying consolidated financial statements have been translated

from Japanese yen on the basis set forth in Note 1.

Tokyo, JapanJune 26, 1998


DOMESTIC NETWORK

● HEAD OFFICE

● OFFICES

● WORKS & LABORATORIES

36

N E T W O R K

Hokkaido Office

Tohoku Office

Chubu Office

Kansai Office

Shikoku Office

Chugoku Office

Kyushu Office

Head Office

Tanashi WorksResearch & Development Center

Chiba Works

Yokosuka Shipyard

Uraga Shipyard

Hiratsuka WorksResearch & Development Center

Laser Center

Nagoya Works

Kyoto Works

Okayama Works

Niihama WorksResearch & Development Center

Toyo Works


Hong Kong Office2103A Tower 2, Lippo Centre, 89 Queensway, Central,HONG KONGTel: (852) 2521-8433Fax: (852) 2840-1704Sumitomo Heavy Industries (U.S.A.), Inc.666 Fifth Avenue 10th floor, New York, N.Y. 10103-1099, U.S.A.Tel: (1) 212- 459-2477Fax: (1) 212-459-2490

Sumitomo Heavy Industries (Europe) Ltd.Ibex House, 42-47 Minories, London EC3N 1DY, U.K.Tel: (44) 171-702-1221Fax: (44) 171-702-1025Sumitomo Heavy Industries (South East Asia) Pte., Ltd.360 Orchard Road #10-04/05, International Building, SINGAPORE 238869Tel: (65) 733-0294Fax: (65) 733-0441

37

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New Delhi

Norcross

Mexico CityPanama


38

M A J O R S U B S I D I A R I E S A N D A F F I L I A T E S

Paid-in capital Principal business

Sumitomo (S.H.I) Construction Machinery Co., Ltd. ¥4,000 million Construction machinery

Sumitomo Yale Co., Ltd. ¥1,000 million Forklift trucks and logistic handling equipment

Sumitomo Eaton Hydraulics Co., Ltd. ¥1,825 million Hydraulic motors, pumps and power transmission equipment

Sumitomo Eaton Nova Corporation ¥1,600 million Semiconductor equipment, especially ion implantation systems

Sumitomo Heavy Industries PTC Sales Co., Ltd. ¥1,200 million Power transmission equipment

SHI Plastics Machinery, Ltd. ¥1,300 million Plastics machinery

Nihon Spindle Mfg. Co., Ltd. ¥3,276 million Spinning machinery and environmental protection equipment

Shin Nippon Machinery Co., Ltd. ¥2,408 million Turbines, pumps, fasteners and blowers

Izumi Food Machinery Co., Ltd. ¥1,120 million Food processing machinery and related equipment

Sumitomo Heavy Industries Foundry & Forging Co., Ltd. ¥1,450 million Castings and forgings

Sumiju Environment & Engineering, Inc. ¥1,120 million Maintenance and operation control for environmental systems and plants

Sumiju Machinery & Engineering Co., Ltd. ¥1,690 million Production and installation of machinery and equipment

Ahlstrom Sumiju K.K. ¥1,600 million Pulp manufacturing equipment

Marine United, Inc. ¥1,480 million Design and construction of naval ships, merchant vessels and offshore structures

Lightwell Co., Ltd. ¥1,480 million Software and related equipment

Sumitomo Machinery Corporation of America (U.S.A.) US$7,723 thousand Power transmission equipment

Sumitomo (SHI) Cyclo Drive Europe, Ltd. (U.K.) £6,400 thousand Power transmission equipment

Sumitomo (SHI) Cyclo Drive Germany, GmbH (Germany) DM14,000 thousand Power transmission equipment

Sumitomo (SHI) Cyclo Drive Tianjin, Ltd. (China) RMB54,000 thousand Power transmission equipment

Tatung SM-Cyclo Co., Ltd. (Taiwan) NT$75,000 thousand Power transmission equipment

SM-Cyclo of Korea Co., Ltd. (Korea) W1,000 million Power transmission equipment

Sumitomo (SHI) Cyclo Drive South East Asia Pte., Ltd. S$2,000 thousand Power transmission equipment(Singapore)

Sumitomo Plastics Machinery Inc. of America (U.S.A.) US$7,000 thousand Holding company of Sumitomo (SHI) Plastics Machinery Mfg. (USA), LLC. and Sumitomo (SHI) Plastics Machinery Mfg. (USA), LLC.

Sumitomo (SHI) Plastics Machinery Mfg. (USA), LLC. (U.S.A.) US$2,500 thousand Manufacture of plastics machinery

Sumitomo (SHI) Plastics Machinery (America), LLC. (U.S.A.) US$2,500 thousand Sales of plastics machinery

Simtech Molding, LLC. (U.S.A.) US$1,000 thousand Molding and processing of plastics

Link-Belt Construction Equipment Company (U.S.A.) US$10,723 thousand Construction equipment

Radiation Dynamics Inc. (U.S.A.) US$7,500 thousand Electron beam accelerator

Lumonics Inc. (Canada) C$144,252 thousand Laser processing system


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O R G A N I Z A T I O N

Corporate Planning & Development Group

Corporate Operations & Service Group

Corporate Technology Operations Group

Research & Development Center

Purchasing Dept.

Information Systems Development Dept.

Internal Audit Dept.

Export Administration Dept.

Corporate Business Promotion Dept.

New Business Development Dept.

Defense Systems Coordination Dept.

Kansai Office

Hokkaido Office

Tohoku Office

Chubu Office

Chugoku Office

Shikoku Office

Kyushu Office

Tanashi Works

Chiba Works

Yokosuka Shipyard

Uraga Shipyard

Hiratsuka Works

Nagoya Works

Kyoto Works

Okayama Works

Niihama Works

Toyo Works

London

New York

Hong Kong

Singapore

President

Board ofCorporate Auditors

Corporate Auditors

Board of Directors

Machinery Group

Machinery Sales Group

Engineering &Environment Group

Ship Group

Steel Structure & ProcessEquipment Group

Power Transmission &Controls Group

Plastics Machinery Div.

Precision Products Div.

Laser System Div.

(As of July 1, 1998)


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B O A R D O F D I R E C T O R S

DirectorHarumi Ikuta

DirectorEiichi Fujita

DirectorKenji Haruguchi

DirectorShigeya Oishi

DirectorMasaaki Shiba

DirectorTakahiko Otani

DirectorNaoki Takahashi

Standing AuditorMasakazu Ozaki

Standing AuditorTsuyoshi Saito

AuditorRentaro Kaneko

AuditorTsutomu Nishimura

(As of June 26, 1998)

PresidentMitoshi Ozawa

Executive Vice PresidentHiroyasu Taniguchi

Managing DirectorYoshio Hinou

Managing DirectorYasufumi Uenoyama

Managing DirectorToshisuke Kawamura

Managing DirectorTakaji Nakanishi

Managing DirectorShuji Toyoda

Managing DirectorYukihito Takahashi

Managing DirectorNoriyuki Yamasaki


C O R P O R A T E D A T A

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Head office: Sumitomo Heavy Industries, Ltd.9-11, Kita-Shinagawa 5-chome,Shinagawa-ku, Tokyo 141-8686, JapanTel: +81-3-5488-8335Fax: +81-3-5488-8056http://www.shi.co.jp

Founded: 1888

Incorporated: November 1, 1934

Paid-in Capital: ¥30,871,651,300

Number of Employees: 5,559

Transfer Agent: The Sumitomo Trust and Banking Co., Ltd.

Stock Exchange Listings: Tokyo, Osaka, Nagoya, Kyoto, Hiroshima

Shares Outstanding: 588,696,680

Number of Shareholders: 82,654

Major Shareholders: The Sumitomo Trust and Banking Co., Ltd. 6.38%Sumitomo Life Insurance Company 5.49%The Sumitomo Bank, Ltd. 4.55%The Mitsubishi Trust and Banking Co., Ltd. 3.40%Nippon Life Insurance Company 3.28%The Toyo Trust and Banking Co., Ltd. 2.63%The Sumitomo Marine & Fire Insurance Co., Ltd. 2.49%The Industrial Bank of Japan 2.26%Sumitomo Corporation 1.77%The Yasuda Trust and Banking Co., Ltd. 1.64%

(As of March 31, 1998)


Printed in Japan O AR037E9819-11, Kita-Shinagawa 5-chome, Shinagawa-ku, Tokyo 141-8686, Japanhttp://www.shi.co.jp

AnnualRep. 98-a 8/26-1-1 8/26/98 11:34 Page a-2

ANNUAL REPORT 1998 · 2017-02-15 · automobile industry. In the area of material handling...

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